(Bloomberg) -- Direct-lending funds are working to provide as much as £1.25 billion ($1.5 billion) for the potential buyout of the UK’s Iris Software. 

Investment banks are also looking to assemble the funding, according to people with knowledge of the matter — making it one of the latest so-called dual-track processes, where both banks and direct lending funds compete. Blackstone Inc., EQT, KKR & Co. and TPG are some of the interested parties looking to buy Iris Software from Hg, several of the people said.

A direct-lending deal for the business-software provider could include a blend of unitranche loans and so-called payment-in-kind notes, said the people, who aren’t authorized to speak publicly on the deal. PIK notes are a type of higher-yielding junior debt that grants the borrower the right to defer interest payments for a period.

Spokespeople for Iris, Blackstone, EQT, Hg, TPG and KKR declined to comment. Debtwire previously reported on funding options for the potential sale. 

The private credit market has morphed into a $1.5 trillion funding pool for prospective buyouts and take-privates. Direct lenders rushed in to fill the gap as banks were forced to the sidelines of the buyout market after suffering billions of dollars in losses on mistimed loans. 

HPS Investment Partners recently provided a €1.5 billion ($1.6 billion) loan package to help fund the buyout of Constantia Flexibles, while direct-lending funds are competing with banks to provide as much as €4 billion of debt to finance a potential take-private of European classifieds company Adevinta ASA.

At the same time, bankers can take heart from the success of recent bellwether transactions — such as the jumbo financing behind the buyout of Worldpay Inc. — which suggest investor appetite for syndicated financings has returned.  

--With assistance from Ruth David, Eleanor Duncan and Dinesh Nair.

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